Why The President Saved The iPhone

By Attorneys John C. Donch and Jonathan G. LombardoSpecial to THELAW.TV

President Barack Obama recently vetoed the United States International Trade Commission’s (USITC) import ban on certain Apple products such as the iPhone 4, and it is worth considering how this veto may alter the litigation strategies of technology companies with large patent portfolios, including patents that may be considered standard essential patents (SEPs). This case was notable because it was the first USITC import ban vetoed by a U.S. President since 1987.

To recap, earlier this summer the USITC ruled in favor of Samsung in its complaint under section 337 of the Tariff Act of 1930 and issued a limited exclusionary order that would have banned the import of certain Apple products including the iPhone 4, iPhone 3GS, iPhone 3, iPad 3G, and iPad 2 3G because those products infringed a patent owned by Samsung (the ‘348 patent). The ruling was made in part because Apple had failed to prove its affirmative defense that Samsung forfeited any exclusionary order remedy by making a commitment to a fair, reasonable and non-discriminatory license (FRAND) when it declared the ‘348 patent to be an SEP. This was a major victory for Samsung in the much publicized mobile patent wars.

However, the President of the United States has veto power over such decisions by the USITC, and last month President Obama vetoed the USITC’s exclusionary order as announced in a letter from Ambassador Michael B. G. Froman.

The Obama Administration cited various policy reasons behind its decision including the effects of the ban on “competitive conditions in the U.S. economy and the effect on U.S. consumers.” In the letter, the Ambassador pointed out the importance of SEPs to the U.S. economy and U.S. consumers due to their reliance on the interoperability of many high-tech products. The letter also discussed the need to balance the leverage held by the SEP owner and the technology implementer in order to mitigate against both patent hold up (asserting a patent against a technology implementer in order to extract a higher license fee) and patent hold out (refusing to pay for a FRAND license).

After stating that the Administration disapproves of the exclusionary order, the Ambassador provided some guidelines for the USITC to consider in future cases. The Ambassador emphasized that in any future decisions involving FRAND encumbered SEPs, the Ambassador would look for the USITC to examine public interest issues carefully and thoroughly and to develop a comprehensive factual record of information on any standard essential aspects of a patent at issue. These guidelines make it appear that getting an exclusionary order as a remedy for infringing SEPs is likely to be more of a challenge than it has been in the past.

Many patent owners have pursued litigation in the USITC in order to obtain such exclusionary orders without having to pass the four factor test used in federal courts for imposing injunctive relief as identified in the eBay v. MercExchange LLC decision. Interestingly, “that the public interest would not be disserved by a permanent injunction” is one of the factors analyzed in the eBay test, which parallels the guidelines laid out in the Ambassador’s letter as summarized above.

If large tech companies are required to pass similar tests in both the USITC and federal courts for obtaining relief, they may now be less likely to pursue USITC altogether and avoid the costs associated with pursuing parallel litigation. As seen in this case, Samsung lost some bargaining power in its dispute with Apple and now will have to pursue remedies in federal court anyhow.

While the import ban would likely have had little impact on U.S. consumers because it applied to Apple’s older products, its veto will likely have a major impact on litigation strategies for large tech companies that routinely engage in patent disputes.

The authors, John C. Donch and Jonathan G. Lombardo, are intellectual property attorneys at the Philadelphia, Pennsylvania law firm of Volpe and Koenig.

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